ASOS shares plunge on higher capex, lower margin outlook

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Shares in British online fashion retailer ASOS plunged as much as 20 percent on Tuesday as the firm increased its spending plans to deliver longer term growth at the expense of short-term profits. ASOS, whose fast-changing fashions are a hit with internet-savvy twentysomethings, attracting fans such as singer Rita Ora, said on Tuesday capital expenditure would increase this year from 55 million pounds to at least 68 million pounds as it steps up investment in warehousing in the UK and Germany and in IT in order to speed up deliveries and cut costs. The investment will increase the firm’s annual sales capacity to 2.5 billion pounds, ASOS said, over 1 billion pounds higher than previously guided, but reduce its operating margin for the year to August 31 to 6.5 percent. “The lowered full-year operating margin guidance and raised capex support our longer term thesis that the cost of growth will keep coming in higher than market expectations for ASOS,” analysts at Liberum said, adding the guidance implied a full-year pretax profit of 65 million pounds, 7 percent below consensus.